Read the full transcript of the interview with David Malpass, World Bank’s outgoing president
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
World Bank’s outgoing President David Malpass recently announced his decision to step down from the helm in June, a year before his term expires. During his nearly four-year stint as the development lender’s chief, Malpass has seen World Bank face the challenges of the COVID-19 pandemic and the Russian invasion of Ukraine and a deepening climate crisis.
Outgoing World Bank president David Malpass said land reform as well as credit availability can be headwinds for India as it targets growth. He however said that there is an opportunity for India to show it has a stable economy and currency.
Below is the verbatim transcript of David Malpass, Outgoing President, World Bank
Q: Let me start by talking to you about your decision to leave the bank ahead of your scheduled tenure and I understand that you believe that the bank is in a good position, it’s strong at this point in time, and hence, you can make this exit. But I wanted to understand from you the timing of it, considering the fact that the world is still going through a very uncertain phase, especially economically. And more importantly, you are looking at a whole bunch of crucial issues including the issue of debt resolution, you are the G20 chair of that committee. So why the decision to move now?
A: It has been a very busy four years. So that is a long time in a job. We have accomplished a lot; we have made progress and I am very happy with the setup of this roundtable on debt. There is lots more to be done in that area, in the climate area, in the development challenges. One of the things I do worry about is the developing countries, and many of them are really facing huge challenges from the standpoint of fertiliser or food and of the high prices that are going on for energy. But these are issues that the World Bank is deeply engaged in. So, my timing is really – we are finishing up a great fiscal year for the World Bank, we have been achieving record levels of lending and of grants to countries. So, I am pleased with the progress. So, it’s a good time for me personally, I want to look for new challenges, and a good time for the bank.
Q: What new challenges are you exploring?
A: I really want to have impact on all the issues that I mentioned there, and also be engaged really, in some of the global issues. I have expressed the concern about the absorption of capital in the advanced economies. So, we know that global growth is really facing some big challenges. So, I expect to be engaged with companies and with structures that are really interacting with the global system. So, I am looking forward to that.
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Q: Let’s talk about the global challenges. And I want to address the issue of growth, but also the address the issue of the challenge that central bankers are facing at this point in time. And it’s very clear from the data that’s coming out from the US that the central banks are going to have to work harder. What do you see as the big side effects of moving from a low for long to a high for longer world?
A: That is a great and a core question. The world has to find a way to get to the answer on inflation quicker than what is happening right now. It looks like a long drawn-out process. We have to start from the premise that the 0 percent interest rate was an abnormal situation that could not continue. So, the world is moving to a more normal interest rate, but I have been pretty outspoken that the central banks need to look at more tools than just interest rate hikes. The interest rate hikes affect the demand side of the economy, but they also slow down the supply side, though the businesses that can’t get capital. I think there is more that could be achieved by central banks in terms of their regulatory policies to make them more business friendly and better risk assessment mechanisms. And I also have the view that the central banks are owning too many bonds. This absorbs capital from all over the world and I think it is a burden really on growth. So, I would like to see a model where the central banks use all of their tools in order to have price stability achieved. I will just make one more point, currency stability has been an important underpinning of global growth. And so, I think there can be more focus on that — I am here in India, and I have been pleased to see that the rupee has stabilized in recent months and I think that’s an opportunity, as well for India to show that it has got a stable financial system that can really support a stable currency and therefore, lower inflation.
Q: You talked about India. So that gives me the perfect segue to focus a little bit more about your thoughts as far as the Indian economy is concerned. Strong at this point in time, relatively resilient in comparison to the rest of the world. How do you view India today from your perch?
A: It’s a very interesting case because many of the developing countries are having more problems than Indian growth. And so, it’s been refreshing and encouraging to see India come off of COVID. It was a very hard time for the people of India come off of COVID, in a way that’s allowing them to really recover. So, what can be done now is to foster that. I saw the new budget, which is making more investments and reducing subsidies. And so that is a good starting point. It was named Amrit Kaal, which is a vision for the future that includes 8 percent growth, I think that’s achievable by India and India is showing the leadership both in the G20 and in the world community to make good progress. I do think it’s really important that the private sector be enabled, that means more space in terms of small businesses, medium sized businesses, women in the labour force is a critical part of the growth, more credit, land reform and agricultural reform – these are all challenges that India can face in becoming more competitive in a challenging global environment.
Q: You talked about private investment and catalysing private investment. And I want to talk about that in the context of India, what we are seeing and that is what the budget articulated are incipient signs of private capital formation. But what do you believe, is necessary? What are the imperatives that will unleash this going forward?
A: India has this challenge of state-owned enterprises probably play too big a role; big companies have been adding employees, which is good, but the real engine for job growth is small businesses that become medium sized businesses. And India has this process where they tend to list, they become publicly listed companies and then they cannot undo that, they cannot form the consolidation waves. Around the world we see consolidation. So, companies that that can be expanded into bigger entities are part of the efficiency gain and the job gain. India could make regulatory changes that enabled that. Agriculture, I will come back to, and land reform are critical parts of the reform process for India and of course, financing India has gone through waves of challenge and solutions. I was here in 2019 and spoke on the topic of the non-bank financial companies that are part of the growth, but I think at the core, there needs to be more efficient banking sector. And as I mentioned, the regulatory sector around avenues for delisting companies so that they can be attractive for huge amounts of new investment.
Also Read | World Bank’s outgoing president says land reform and credit availability can be headwinds for India
Q: You are going to be meeting with the Prime Minister as well as the finance minister, and you are going to be part of the deliberations at the G20 meeting in the Bengaluru as well, any specific areas that you intend to take up with both the Prime Minister and the finance minister?
A: We have had a great dialogue between the World Bank and the Prime Minister and the finance minister. And I look forward to that. We talked about specifics. India is leading the G20 and one of the topics there will be India’s own competitiveness and role in the world which is expanding and is welcome by the world. But I also mentioned this debt roundtable that will be part of the discussion. So, I will be discussing those topics with those two senior officials. Prime Minister Modi has been very interested in helping India achieve this faster growth rate. So, I know we will speak about steps in competitiveness that can make it stronger. The finance minister Sitharaman has just launched the budget and it’s a starting point for Amrit Kaal also. So that’s a very interesting proposition and outlook. And we will talk very much about climate in both of the meetings about agriculture and above all about private sector enabling this process of really making India one of the leaders of the world in private sector growth. I think that’s a worthy goal and one that they are already pushing forward on strongly.
Q: Let’s address the issue of debt resolution, because that is something that you are here to focus on. The good news is that China is at the table, the bad news is that we haven’t moved fast enough. What are the next steps that you are focusing on? How confident do you feel in terms of being able to get this done?
A: The roundtable brings together different parts of the challenge – the private sector, China, as you mentioned, others of the non-Paris Club creditors, and the debtor countries will also be represented. And that is important because they all have to move somewhat at the same time. And so critical on this is to have a faster timetable for reconciling the debts of the various players that – that’s been taking a long time within the debt restructuring process. So, reconcile the debts, agree that what you are trying to do is have comparable treatment across the various creditors, and then find ways to resolve some of the barriers. I will give you one example that some of the contracts have penalty interest within them.
And so how are you going to handle that if you have a standstill, which has been working for country, that means stop paying the debt now, work with your creditors in order to work together to get a favourable workout, where everyone can find a path forward, but blocking that is the risk that there would be penalty interest, meaning a super high interest rate on the deferred amounts of the debt. So, these are detailed issues, but they have to be resolved as the restructuring process comes together. And China important is that they are still including non-disclosure clauses in some of their contracts, that makes it very difficult to do the restructuring. They take collateral, which is not really necessary and also escrow accounts. So, these techniques of the lending techniques,
I think, can be improved in a way that really helps reach a conclusion. Importantly, in this is China itself can benefit from this. It’s one of the biggest exporters, often the biggest to many parts of the world. And so, it can benefit if there is faster growth in the countries. It doesn’t benefit from having countries become unsustainable. And so, I think everyone can work together to try to find a good outcome from this.
Q: Given what you said that it is in China’s interest to be able to get to a resolution faster, so that we can in fact, see growth pick up in some of these debts distressed countries. Now, do you feel confident of being able to get to a conclusion, and more importantly, you have a debt crisis, but you also have, in your words, a giant shortage of capital, as far as the developing world is concerned. When the two coincide, what does that mean as far as outlook is concerned?
A: On your latter point, while the capital has been absorbed by the advanced economies, the amounts that are available are enough to solve this problem. China is a has done very well with its economy, it has got enough resources to be able to deal with this problem. And that’s true of the other creditors as well. The private sector creditors are well funded. They are often based in New York, in London, and they can also find ways to absorb change within these debt structures. What we are talking about sometimes is extending the maturities of the debt at a very low interest rate for a long period of time. So, it gives breathing room to the debtor country to make the changes needed to grow into the future.
So, I think there are the elements to make it work. I had a very good meeting in China in December, Kristalina Georgieva, the IMF Managing Director, and I had a dinner with China Exim Bank and China Development Bank. And we discussed these terms, and what steps are needed or that China could be taking in order to facilitate the process. And the Premier of China saw a very much the opportunity for China to make more progress. So, I am hopeful that we can put this all together this week in the roundtable.
Q: Well, that’s important that you believe that there could be a positive outcome at the end of the meeting here in Bengaluru?
A: Yes, the elements are there, and we will have to see how the discussion really goes at the table. It is very important France’s role in this because it’s the chair of the Paris Club. Now, under the current circumstances, many of the debtor situations that have actually a very small component, that is Paris Club, but France has been the chair of the various creditor committees. So, its role in this and its participation will be important in making it work and begin to get to conclusions for some of the countries.
Q: One of the other issues that is up for discussion at the G20 is the evolution of multilateral development banks like The World Bank. And the call for reforms has been on for a while now, but both in terms of outreach, in terms of financial capacity, you have been talking about how the bank has evolved, what do you see as the next steps as far as the bank’s own evolution are concerned?
A: There is a huge amount of work done in the World Bank, but in the development community as a whole of how to make the institutions more effective, I welcome that and have embraced that process and so we are going through each part of the process, what is the mission, how can the mission clearly absorb and take account of the need for global public goods – that is in the climate space but in other areas as well – that is the reality that countries benefit from what happens in other countries. So how do you encourage that in terms of global public goods, and especially in emission reduction in terms of carbon dioxide. The second pillar of the exploration going on now and it has been led by our board of directors, and they represent the shareholders of The World Bank. The second phase is operations, how do you make them more effective? How do you bring in all of the various tools that can be brought together. And then third is this issue of resources, can the bank better mobilize its own balance sheet, and then and also bring in resources from the rest of the world, in order to deal with global challenges?
We have made some changes so far already, for example, in December, we presented to the board the benefits that the bank is getting from higher interest rates. It’s a little counterintuitive because the clients, the borrowers are under much pressure, but the bank charges high, the interest rates go up, when the world interest rate environment rises and so that’s going to allow us to begin lending and we have quantified it as $2 billion per year more starting in our next fiscal year. I will be wrapping up and stepping down at the end of this fiscal year, which is June 30, but by the next fiscal year, we will be able to lend $2 billion more per year based on that. And then we are also looking at a change to increase our leverage ratio slightly, and that will allow another $4 billion per year. So, these are sizable amounts, but they are not nearly enough for the challenges that the world faces. So, we are also looking at all other tools in order to expand our reach, our impact and the direct amount of financing that we can provide to countries.
Q: You talked about the need for financing or greater financing, especially when we talk about climate financing, etc. What are the mechanisms that you believe one can explore at this point in time, you have previously talked about trust funds as a mechanism that can be explored? What are you seeing as innovative financing mechanisms to address some of these global challenges today?
A: Some part of the challenge is if I make a loan to you for something that you didn’t so much want to do only for yourself, but as part of a global public good, what is the interest rate that can be charged? And can I bring in concessional resources to help you with the decision to take on that loan? An example of that is coal transition, as countries look for ways to reduce their dependency on coal, they recognize that it’s their cheaper source of financing, but it has this global impact. So how do we blend the financing in and so we have proposed trust funds to do that. We can also look at ways to more effectively use the callable capital of the World Bank, the board has been discussing technique that can do that. We have looked at hybrid capital, which is a way to bring in new equity capital.
The World Bank has this somewhat unique leveraging capability. We borrow massively in international bond markets, even this year, year to date, starting in January, up through last week, we had already issued USD 14 billion of bonds, which then directly goes to client countries in our lending. Even our concessional fund, which is so important to the 75 poorest countries, it itself has been successful in issuing bonds in international markets. So, these leveraging techniques can be expanded, can be looked at as ways to effectively use global resources. If you look back,
The World Bank has a track record from 1944 to present, the entirety of the paid in capital, the actual cash that has gone into IBRD, it has only been some USD 20 billion and from that the lending of The World Bank became USD 840 billion. Actually, now it is USD 860 billion. So, from that, that initial corpus of paid in capital has come this giant amount of leveraging. So, we are looking to use those techniques as broadly and effectively as possible including for global public goods.
Q: As we look at the world today, and we continue to see some of the challenges that we have already spoken about – high interest rates, inflation, debt, the war in Ukraine continues; no signs of that deescalating at this point in time. What are you most concerned about, including, of course, a large part of the world moving towards more and more protectionist policies, trade policies?
A: You mentioned a bunch of concerns. We have been talking about the debt of the poor countries or of developing countries, but really, for the world, one of the giant challenges is the debt of the advanced economies, this is the fiscal deficits that are so large, I need to note, India itself has still a sizable fiscal deficit. It’s coming down in the current budget from 9 percent down somewhat, but it still is large by developing countries standards. As we look at the advanced economies, they have just a massive challenge, because the national debts are going up at such a rapid rate. So that’s a giant challenge. You mentioned trade. And I am glad you did; trade is so important to the pace of global growth.
It’s a vital underpinning of how businesses work, and how people can become more efficient through competition across borders. And so, I am worried that the that the current problems are causing some of the countries to put up new barriers to trade. They get named in different ways. Some of them can be barriers because of security issues or barriers because of climate issues or barriers because of food, food security issues, some countries are having giant stockpiles of food, all of those become problematic.
Q: Yes, those are some of the problems that we will continue to face. But let me end by asking you, do you feel hopeful that the setback that we saw, especially on the development goals and the development agenda that saw deterioration, in fact, pre-COVID and then got further enhanced through the COVID period? Do you feel hopeful today that there is courage, political will, political capital to try and address this as you leave office?
A: I am comfortable with where The World Bank is and that we have put this high priority on education and on health. We just launched the new pandemic fund on health – thanks to some donors, and it has the goal of helping countries prepare for future, prepare better for future pandemics and education. We had a very important conference at the end of 2022 on the techniques that are needed in order to recover some of the losses that occurred due to COVID. Those techniques are having schools open that turns out to be one of the most important – having children be in school more hours per day is very important. The funding for schools is important and also the focus on foundational learning, the actual reading and writing skills were lost during COVID and need to be regained.
So I am comfortable with where The World Bank is on that, but it’s amid this giant challenge that the world has with fertilizer, we are worried about the crop cycle for next year and we have to have as a world, this concern that growth in the developing countries is simply not that too general, growth in many of the developing countries is simply not sufficient to really raise living standards. And as you know, young people that don’t have jobs have a tendency to either cause trouble in terms of their protests within their own societies, but also moving to other countries — that migration is going to be a focus, we have a major report coming out on migration as one of the challenges facing the world. So, I am concerned about that. I think we all need to redouble and retriple our efforts in terms of development itself, the core principles that we have been working toward.
Click here for the video | World Bank’s president says rising fertiliser and food prices huge challenge for most developing countries
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